Social Media ROI – You’re looking in the wrong place

About two years ago, I forecast that the real value of social media would be in applying it across the enterprise for INTERNAL uses that would break down barriers, speed communication, and enable collaboration.

It just makes so much sense. Employees already enjoy using fun applications like social networks and wikis and the power of these tools in the external environment to unleash creativity, collaboration, and productivity is proven. A new report from McKinsey validates this premise and places an actual number value on the potential savings of using similar tools internally.

The real ROI of social media

The report states that the speed and scale of adopting social technologies by consumers is unprecedented, yet companies are far from capturing the impact of these platforms. Almost any human interaction that can be conducted electronically can be made “social,” but only 5 percentof all potential uses now take place through social networks.

The consulting firm identified 10 ways in which social technologies can create savings across the value chain. They estimated that between $900 billion and $1.3 trillion in value can be unlocked in the U.S. alone from these technologies:

Social networks

Blogs and micro-blogs

Ratings and reviews

Social commerce

Wikis

Discussion forums

Co-created content

Crowd-sourcing

Media and file sharing

Social gaming

Spanning across all these categories is social analytics to enable better-informed decisions.

Two-thirds of the projected value comes from improving communications and collaboration across the enterprise. It gets at this idea of organizing a company around problem-solving instead of silos. For example, in a large company, the expert company employee to solve a problem in the U.S. might actually be based in Australia. Social platforms can make employees aware of these problems and unleash their skills through social technologies. McKinsey estimates implementing internal social systems could raise the productivity of knowledge workers by at least 20 percent. What a revolutionary opportunity!

Social influence may change the way we sell

One of the most fascinating predictions in the report is that the ability to identify the social influence of employees might “disintermediate commercial relationships and upend traditional business models.” In other words, the power to deputize all of your employees for marketing, sales, and service can change the way you sell. I reported on an example of this in a post a few weeks ago about using social scoring measures to assess the “Internet impact” of employees. Quite interesting that McKinsey is already picking up on this as a global organizational trend.

As you can imagine, realizing these financial gains wil require significant transformations in management practices and organizational behaviors — HR will be leading the way toward social media success. As in most cases involving transformational change, the technolgy is the easy part!

What’s keeping companies from moving ahead with these ideas? Fear of risk. There are undoubtedly legitimate risks involved, including potential loss of intellectual property, violations of privacy, abuse, and potential PR problems. Also, social technologies can disrupt traditional business models, creating internal resistance from bureaucracies.

However, competitive pressures will eventually drive companies to overcome these risks. Companies that fail to invest in social technologies will fall behind.

Are internal social media platforms right for you?

The industries most likely to benefit from integrating social technologies have these characteristics:

A high percentage of knowledge workers.

Heavy reliance on brand recognition or consumer perception

A need to maintain a strong reputation to build credibility and consumer trust

A digital distribution method for products or services

An experiential (hotels) or inspirational product or service (sports products)

Particularly fit for the social overhaul are consumer goods companies, education, professional services, media, and software companies, which have a high number of knowledge workers and a high reliance on brand recognition.

The report concluded that social technology is not an IT issue and will depend on multiple factors for success, including an ability to create trust in the platforms, a critical mass or participation, and positive community cultures.

But I think the McKinsey report only hits the tip of the iceberg. The value calculations are based on an ability to improve or replace existing communication structures. But I think the most exciting aspects of the potential benefits are not found in the bottom line savings, but the unknown creativity that will be ignited when you turn these tools over to the hands of employees who will use them in ways we cannot even imagine!

I would love to hear about your experiences. Are you beginning to use social platforms internally at your company?

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Social networking has been on the web for such a long time now and it seems as though the social networks are pushing ads to the user much more than they ever did years ago. I speak from personal preference – i don’t want to be fed ads when looking through my friends on Facebook etc

Your article is very interesting and yes we as a company are using a social collaboration tool which we designed, called Tracky,http://www.tracky.com. We use it both internally and externally and agree that it has increased productivity, decreased the need for emails and makes it easier for everyone involved in a particular project to access information easily. We feel that Tracky is unique as it allows us to connect not only with our team but with anyone.

How effective do you think that social media would be in terms of fixing the “silo” problem though? I feel like every company harps on not working in silos – but how many actually act that way?

I suppose social media can help in that regard. But I have a feeling that, even using social media is an internal communication mechanism, company departments will still mainly interact within the department – not the company as a whole.

I have to admit I think so much about external connections with social I haven’t really thought much about how these tools can be used internally. This is a good reminder to pay attention to this obviously untapped area.

@EugeneFarber:disqus brings up a good point about silos. Would these networks reflect our offline interactions in the workplace? My suspicion in this case is they would.

I’m wondering too, if employees are asked/told to use tools like this for internal communication, would they resist using the them? I worked on a project where we used Basecamp from 37Signals and the blow back from the staff was much stronger than we anticipated. Staff complained about having too learn yet another tool to increase workplace effectiveness and efficiency. I suppose that just illustrates the fact that culture within an organization supersedes technology. There will always be early adopters and laggards 😉 Thanks for the wisdom Mark.

The problem I think mark is that social is sold as a marketing tool. if people wrote books and gave talks that said ‘Improve internal communications to save money and add to your bottom line’ they get crickets. Even if it is big $$. But say ‘Social Media will rev up your sales and grow your company’ there you go gazillion books sold. But that doesn’t happen. But say it again. A gazillion books sold.

Just means the masses look at stuff wrong because of the people making money selling marketing holy grail stuff. That will end and big companies already are seeing in the benefit internally of sharing.

I will say I am surprised social is 5% I have estimated about 1% of human communication I need to analyze that chart more. I know Comscore said 13 minutes a person per day in the US using social media vs 4+ hrs watching TV.

i personally think this is the number one thing a company can do to break down silos. Yes, there will still be egos and titles in the way but this unleashes information in a way that will be transformational.

You bring up a great point Don. There is no such thing as a grassroots cultural change. This must be understood, sponsored and adopted from the top or it won;t work. I had a similar experience with CRM implementation at a Fortune 100 company. Nobody will use it until the boss makes it an expectation of employment.

To make something like this work, you can’t make it a “program” with a project name. It has to be like the phone or email. Simply a way we are going to do our work now. If it is “sold” or labeled people will think it is just another flavor of the month and it will be ignored. Thanks for the thought-provoking comment my friend!

You are right Mark. I think we will get there. When I worked in B2B industrial world I saw ISO9000 programs. Lean Manufacturing. Kaizen. Cycle Counting. Kan Ban. Too often everything is the flavor of the year. But eventually they become SOP and melt into how things work. As you said just like using a phone.

With apologies for commenting a week after you posted – I was travelling last week and have only just caught up with my blog feeds! As always, your posts are thought provoking and prompt me to crystallise my own thoughts – thanks!

From my perspective, working as part of a small company that is now rapidly growing, I see the potential for use of social platforms internally as a key way to keep our business very human. As we grow we need to find ways to keep hold of the ‘smallness’ of our company where we can: direct communication lines; sharing what we do with each other; collaborating freely and frequently; sharing who we are and what motivates us as well as what we do.

Good post Mark and many of there are plenty of interesting examples or large organisations using social internally. However this is a huge opportunity to help SMEs level the playing field and to power business growth too.

We’re a small team working in professional services with a disparate team. We’ve been using Yammer as a way to share ideas, retain knowledge, build team momentum and generally help to support a social and tech savvy culture. I don’t know how we are going to measure its impact on the bottom line, but as we grow I’ve no doubt it will prove to be a useful asset.

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You’re in marketing for one reason: Grow. Grow your company, reputation, customers, impact, profits. Grow yourself. This is a community that will help. It will stretch your mind, connect you to fascinating people, and provide some fun along the way. I am so glad you’re here. -Mark Schaefer